Foreign Company Setup Options in Malaysia
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Subsidiary vs Branch vs Representative Office
The table below compares 3 common registration options for foreign companies/expatriates looking to start a new business in Malaysia. The tax and compliance requirements depend on the type of entity you choose to set up.
As company formation experts, our goal is to help company owners make the best choice when setting up in Malaysia. Please feel free to contact us via email info@gmc2u.com or phone +603 7890 6663 .
外国公司注册类型 | 子公司 | 分公司 | 代表处（RO） |
|---|---|---|---|
Entity Name | Does not need to be the same as the parent company | Must be the same as the parent company | Must be the same as the parent company |
Permitted Activities | All commercial activities are available* | Must be the same as the parent company | Only market research or coordination activities can be carried out |
Suitable for | Local or foreign companies looking to expand their business in Malaysia | Foreign companies wishing to expand their business in Malaysia for a short period of time | Foreign companies that wish to set up a temporary vehicle in Malaysia for investigation and liaison purposes but will not conduct actual business transactions |
ownership | Can be 100% foreign* or locally owned | 100% owned by the parent company | No ownership |
Separate legal entity | have | none | none |
Maximum number of members | Up to 50 people | not applicable | not applicable |
Minimum establishment requirements | – At least one shareholder, or solely owned by a corporate body (100% local or 100% foreign*) | ||
One local director who does not have to be a Malaysian but must hold a valid work permit and have his or her principal residence in Malaysia | One local director who does not have to be a Malaysian but must hold a valid work permit and have his or her principal residence in Malaysia | The person does not need to be a Malaysian and does not need to hold a valid work permit | |
A registered company practitioner/qualified secretary, public accountant or lawyer registered with the Companies Commission of Malaysia (SSM) who can assist with registration documents and other requirements | |||
Have at least one Malaysian resident acting as agent | – Proposed operating expenses must be at least RM300,000 per annum | ||
The source of funds should be outside Malaysia | |||
Limited Liability | have | No, the responsibility is borne by the parent company | No, the responsibility is borne by the parent company |
Accounts Audit | have | have | none |
Submit accounts to SSM and LHDN | have | have | none |
Annual declaration | Subsidiary audit reports must be submitted | Audit reports of the branch and parent company must be submitted | not applicable |
Tax treatment | – Pay tax as a Malaysian resident entity and enjoy local tax benefits | ||
Profits generated in Malaysia (adjusted for tax purposes) are taxed at 25%. Small and medium-sized enterprises are taxed at 20% on their first RM500,000 of chargeable income. | |||
Depending on the type of activity performed, eligible persons may enjoy tax benefits | – Pay tax as a non-resident entity and cannot enjoy local tax benefits | ||
Profits attributable to branches (subject to tax adjustment) are taxed at 25% | |||
Service fees collected by the branch in Malaysia will be subject to 10% + 3% withholding tax | |||
Usually no tax benefits | not applicable | ||
Supervisor Appointment | Must appoint at least one local resident as director | At least one local resident must be appointed as agent | not applicable |
Employee Recruitment | No restrictions on hiring local or foreign employees | No restrictions on hiring local or foreign employees | – Foreign employees will be assigned, the number of which will depend on the functions and activities of the representative office. Foreign employees can only hold management and technical positions
– The assigned foreign employees must be employed by the applicant company or its subsidiaries/groups |
With the liberalization of Malaysia's equity policy, foreign investors can generally hold 100% of the shares in most industries, except for strategic industries related to national interests such as water resources, telecommunications, ports, and energy. Each industry has specific regulations issued by relevant government departments, which include possible restrictions on the company's foreign equity ratio, higher paid-in capital requirements, and the need to obtain regulatory approval before commencing operations (i.e. special approval, business license, permit or registration).
A Malaysian branch is considered a non-resident company for tax purposes and cannot enjoy tax benefits like a start-up company or a resident company. In addition, service fees collected in Malaysia will be subject to a 10% + 3% withholding tax. Therefore, most foreign companies choose to set up a subsidiary rather than a branch.
Representative offices are suitable for foreign companies that wish to collect information on investment opportunities in Malaysia (especially in the manufacturing and service industries), strengthen bilateral trade relations, promote the export of Malaysian goods and services, and conduct research and development (R&D). Representative offices cannot carry out any commercial activities and can only perform designated functions on behalf of the head office/person in charge.